SP Angel . Morning View . Monday 13 06 22
Stronger US dollar and risk off sentiment drags metals lower on US inflation
MiFID II exempt information – see disclaimer below
Beowulf Mining PLC (AIM:BEM)* – CEO appointed for Jokkmokk Iron
BlueJay Mining PLC (AIM:JAY, OTCQB:BLLYF)* – Demerger of Disko Exploration assets in Greenland proposed
Empire Metals Ltd (AIM:EEE)* – NED steps down
Gem Diamonds Limited (LSE:GEMD, OTC:GMDMF) – Three large diamonds recovered from Letšeng over the last three weeks
GoldStone Resources (AIM:GRL)* – Trading suspended
Premier African Minerals Ltd (AIM:PREM) – Progress report on the Zulu Lithium project
Serabi Gold (AIM:SRB, TSX:SBI)* – Palito delivers 2022’s highest gold production in May
Shanta Gold Limited (AIM:SHG, OTC:SAAGF) – Production picks up in May and a new $20m secured loan facility for Singida signed
Dow Jones Industrials -2.73% at 31,393
Nikkei 225 -3.01% at 26,987
HK Hang Seng -3.39% at 21,067
Shanghai Composite -0.89% at 3,256
Economics
US – Stock market sell off accelerates as markets price in tighter monetary policy outlook as consumer prices hit a fresh 40-year high in May.
- CPI climbed to 8.6%yoy last month compared to market estimates for a 8.3% reading.
- Shorter term rates (2y) jumped past the 3% mark at the end of last week and currently trade at 3.2%, up nearly 40bp from early Friday.
- Fed funds futures are pointing to a ~250bp over the course of the remainder of the year implying ~50bp move at every of the remaining five meetings taking rates to 3.4%.
- Some economists are arguing a larger 75bp may now be on the table.
- The FOMC decision is later this Wednesday.
- The US$ index is up nearly 1.5% since early Friday weighing on commodity prices.
- US consumers have raised inflation expectations for the next 5-10 years, to 3.3% in May from 3% in April (University of Michigan sentiment survey)
- The news is hardly surprising given the focus of new on headline inflation
- If oil and gas prices fall, consumer expectations could quickly reset.
- The Manheim Used Vehicle Value Index rose 9.7% yoy in May adding further to consumer sentiment
- Used car prices are being driven by long lead times for new vehicles due to ongoing semiconductor chip shortages and consumers delaying purchases of new cars pending the introduction of new models of electric vehicles.
China - Trade surplus rose to US$76.7bn vs US$51.1be in April
- Exports rose 16.9% (3.9%)
- Imports up 4.1% (0.1%)
- Foreign exchange reserves held steady at US$3.128tn
- Total social financing rose to CNY2,790bn vs CNY645bn
- CPI dipped 0.2% in May vs 0.4% in April and 2.1% yoy in May
- PPI pulled back to 6.4% yoy in May vs 8% in April
- Unwrought copper imports into China rose 1.6% year-to date to 465,495t
South Korea – Q1 GDP rose 0.6% in May vs 0.2% in April and 3% yoy in May vs 4.2% in April
Japan - Q1 GDP fell by an annualised 0.5% in May but reported a better than expected 0.1% fall on the last quarter
- Eco Watchers outlook survey rose to 52.5 in May vs 50.3 in April
- PPI remained stubbornly steady at 1.3% but pulled back to 9.1% yoy in May vs 9.8% yoy in April
EU – Q1 GDP rose 0.6% in May vs 0.2% in April and 5.4% yoy in May vs 4.7% yoy in April
UK – The pound pulls back 0.4% this morning on the news that the economy unexpectedly reported a drop in April.
- GDP fell 0.3%mom in April compared to a 0.1%mom forecast.
- Construction, manufacturing and services all contracted together for the first time since January 2021.
- Interestingly, a drop in services was led by a drop of ~70% in test and trace spending as the government wound down the programme.
- Excluding test and trace and vaccination, the economy would have grown 0.1%during the month.
- The BOE is holding a monetary policy meeting this week with expectations for another 25bp rate hike to 1.25% to be announced.
- Earlier reports showed that the CPI rate hit 9.0% in April, the highest level in decades, with a consumer seen cutting back on non-essential items spending in response to the cost of living squeeze.
Peru – Locals are reported to have agreed to allow the reopening of the road to the Las Bambas copper mine after 51days of closure.
- Las Bambas should produce some 300,000-320,000tpa representing some 2% of global production
- The mine has created >6,000 direct and indirect jobs employing around a quarter of the region’s population
- Las Bambas paid $193m in taxes and royalties last year and represents ~1% of Peruvian GDP
.
Australia - HIA new home sales fell 5.5% mom in May vs -1.2% in April
Russia - Inflation rose just 0.1% vs 1.6% in April but is still a whopping 17.1% higher yoy vs 17.8 yoy in April
Brazil - CPI pulled back to 0.5% in May vs 1.1% in April and recorded 11.7% yoy in May vs 12.1% yoy in April
Currencies
US$1.0467/eur vs 1.0637/eur last week. Yen 134.70/$ vs 133.48/$. SAr 16.073/$ vs 15.417/$. $1.255/gbp vs $1.249/gbp. 0.700/aud vs 0.713/aud. CNY 6.733/$ vs 6.682/$.
US Dollar strength limited the recovery in metals prices but effectively raises input prices for Chinese and other non-US manufacturers.
- The PBoC has maintained the CNY between 6.65/USD and 6.81/USD since 5th May setting a new weaker range for the currency.
- Russia and China might be trying to break the dominance of the US dollar as the world’s global trading and reserve currency but the impact of the Ukraine conflict combined with US emergence from Covid is to make the currency stronger.
- A weaker yen, now at a 24-year low may also help jolt Japan out of its ‘lost decade’ of stagnant growth through the inflationary impact of higher raw materials costs
- The drop reflects outlook for higher rates in the US while Japan maintaining its super loose policy with growth underperforming and inflation running at a fraction of the rate in the US.
- A rapid depreciation in the yen saw the central bank governor delivering a warning that the impact of a rapid slide in the currency is damaging for the economy.
Commodity News
Precious metals:
Gold US$1,856/oz vs US$1,847/oz last week
Gold ETFs 105.1moz vs US$105.0moz last week
Platinum US$954/oz vs US$976/oz last week
Palladium US$1,912/oz vs US$1,939/oz last week
Silver US$21.54/oz vs US$21.73/oz last week
Rhodium US$13,800/oz vs US$14,000/oz last week
Base metals:
Copper US$ 9,322/t vs US$9,575/t last week
Aluminium US$ 2,620/t vs US$2,734/t last week
Nickel US$ 26,635/t vs US$27,510/t last week
Zinc US$ 3,605/t vs US$3,754/t last week
Lead US$ 2,112/t vs US$2,180/t last week
Tin US$ 34,250/t vs US$36,515/t last week
Energy:
Oil US$119.8/bbl vs US$122.3/bbl last week
Natural Gas US$8.521/mmbtu vs US$8.995/mmbtu last week
Uranium UXC US$52.40/lb vs $52.85/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$138.2/t vs US$141.1/t
Chinese steel rebar 25mm US$705.5/t vs US$717.3/t
Thermal coal (1st year forward cif ARA) US$218.3/t vs US$218.3/t
Thermal coal swap Australia FOB US$349.0/t vs US$359.0/t
Coking coal swap Australia FOB US$385.0/t vs US$385.0/t
Other:
Cobalt LME 3m US$72,900/t vs US$72,900/t
NdPr Rare Earth Oxide (China) US$142,936/t vs US$144,039/t
Lithium carbonate 99% (China) US$67,644/t vs US$67,717/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,816/t vs US$1,845/t
China Tungsten APT 88.5% FOB US$332/t vs US$333/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.6/lb vs US$9.6/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$365/t vs US$367/t
Spot CO2 Emissions EUA Price US$85.2/t vs US$84.8/kg
Brazil Potash CFR Granular Spot US$1,150/t vs US$1,200.0/kg
Battery News
$1bn EV battery plant approved in Thailand
- A $1.04bn joint venture between Taiwan’s Foxconn and Thailand’s PTT, to produce batteries for EVs, has been approved by Thailand’s investment agency.
- The Horizon Plus Co project is one of several investment applications totalling over $6bn in manufacturing and infrastructure to be approved.
- Exact details of the EV plant are unknown as of yet
Volkswagen-led research team to recycle batteries multiple times
- A research team, spearheaded by Volkswagen will look to prove that the most valuable components of EV batteries can be recovered and reused several times in succession.
- The HVBatCycle research consortium has the overall goal of keeping cathode metals, electrolyte and graphite in a closed loop.
- The consortium will work with researchers from RWTH Aachen University, TU Braunschweig and the IST for three years to develop the necessary processes.
- The research is being funded by the German Federal Ministry of Economic Affairs and Climate Action.
Company News
Beowulf Mining PLC (AIM:BEM)* 5.5p, Mkt Cap £4m – CEO appointed for Jokkmokk Iron
- Beowulf reports that Ulla Sandborgh has been appointed as CEO of Jokkmokk Iron Mines AB, Beowulf's wholly owned Swedish subsidiary which is developing the Kallak Iron Ore Project.
- Ulla has held senior positions in private enterprise and public institutions, in sectors including infrastructure, electricity and water.
- Ulla’s most recent role was a Director General, Ministry of Enterprise, The Government of Sweden, in which role she was responsible for issues affecting the limestone and cement industries.
- Ulla has extensive experience in managing permitting processes and, as part of this, engaging with stakeholders.
- Ulla Sandborgh, CEO, Jokkmokk Iron commented: " It's an exciting time to join Jokkmokk Iron Mines as CEO. The Company can now move forward after receiving the grant from the Swedish Government for an Exploitation Concession for Kallak North. We are now focused on taking the next steps, securing all remaining permits and moving towards our goal to be in production in 3-4 years.”
*SP Angel acts as nomad and broker to Beowulf Mining
BlueJay Mining PLC (AIM:JAY, OTCQB:BLLYF)* 6.00p, Mkt cap £63m – Demerger of Disko Exploration assets in Greenland proposed
(Bluejay has a staged $20m jv with Rio Tinto and holds 100% of Enonkoski Ni-Cu-Co, Hammaslahti Cu-Zn-Au-Ag and Outokumpu Cu-Co-Zn-Ni-Au-Ag projects)
- Bluejay Mining is proposing to demerge its Disko Exploration portfolio into a new and separate listing.
- Disco Exploration currently holds:
- 49% of the Disko-Nuussuaq nickel, copper and pgms in joint venture with Kobold Metals
- 100% of Kangerluarsuk: zinc, lead, gold and copper
- 100% of Thunderstone, a gold, base metals and rare earths project in Greenland.
- Management are principally focussed on the Dundas ilmenite mineral sands project near the Thule US Airbase in Greenland where we expect an optimised feasibility study to support the full financing of the project next year.
- The proposed separate listing of Disco Exploration follows on from AEX Gold’s announcement on Friday whereby ACAM is contributing £18m in return for a 49% stake in AEX’s non-gold mineral portfolio in Greenland. ACAM is supported by the family office fund JCAM run by Tim Leslie and Louis Bacon.
- Bluejay have appointed advisers for the new listing “dependent on the outcome of the review, shareholder approval, as well as market conditions.”
- A shareholder meeting will be held to approve the demerger.
- The proposed IPO will seek to raise funds to contribute proportionately to the rapid development of the Disko-Nuussuaq jv with Kobold Metals.
- Bluejay will continue to support its other exploration in Finland including
- Enonkoski: nickel, copper, cobalt and pgms in joint venture with Rio Tinto
- Outokumpu: copper, cobalt, zinc, nickel, gold, silver and pgms
- Hammashlathi: copper, zinc, nickel, gold, silver and pgms
- Black Shales (Rautavaarra/Paltamo): nickel, zinc, copper, cobalt in joint venture with Metal One Plc
- Conclusion: The proposed separate listing of the Disko Exploration assets is in response to interest in base / battery metals exploration in Greenland. Certain strategic investors appear to be keen to back new exploration in the region for its prospectivity and potential scale.
- Greenland appears to have become a new front for critical metals exploration for the US as investors and explorers look for new exploration projects in the region. We believe the Greenland government is supportive of mineral exploration and development for all metals with the exception of uranium and any other radioactive materials.
*SP Angel acts as nomad and broker to Bluejay Mining. The analyst holds shares in Bluejay Mining.
Empire Metals Ltd (AIM:EEE)* 1.3p, Mkt Cap £5.6m – NED steps down
- Empire Metals reports that Mike Struthers Non-Executive Director, is stepping down from the Board with immediate effect.
- Mike moved into the role of Chief Executive Officer at Candelaria Mining Corp. (TSX-V:CAND, OTC:CDELF) in February 2021.
- Candelaria Mining offered to acquire Empire (formerly Georgian Mining’s) mineral assets in Georgia which led to the eventual sale of Empire’s 50% stake in certain Georgian assets for $3.3m by Russian owned, Caucasian Mining Group 'CMG' by virtue of their first right of refusal.
- Shaun Bunn is now leading the company into new exploration territory with a substantial drill program to test a number of highly prospective gold assets now underway.
*SP Angel acts as nomad and broker to Empire Metals
Gem Diamonds Limited (LSE:GEMD, OTC:GMDMF) 54p, Mkt Cap £72m – Three large diamonds recovered from Letšeng over the last three weeks
- Gem Diamonds reports the recovery of a 245-carat type IIa white diamond from its 70%-owned Letšeng mine in Lesotho.
- The company says that this is the “third diamond of over 100 carats recovered from the Letšeng mine within the past three weeks” and follows “the recovery of a 129 carat diamond on 23 May, and a 125 carat diamond on 31 May”.
- During 2021, the mine recovered six diamonds larger than 100 carats and with three such stones recovered within the space of just three weeks hence we infer that Letšeng is currently mining a particularly fruitful block of ground.
GoldStone Resources (AIM:GRL)* 10.5p, Mkt Cap £46m – Trading suspended
- GoldStone notes the suspension of the Company's ordinary shares from trading on AIM following an operational matter.
- The Company confirms that operations at the Homase Mine are continuing as usual and will provide a further update in due course.
*SP Angel acts as broker to GoldStone Resources (AIM:GRL)
Premier African Minerals Ltd (AIM:PREM) 0.37p, Mkt Cap £90m – Progress report on the Zulu Lithium project
- Premier African Minerals has outlined progress on its Zulu Lithium project, located in the Fort Rixon greenstone belt in Zimbabwe.
- The company highlights “a potential opportunity … for Zulu to be brought into early production based on a large-scale pilot plant using ore sorting technology to concentrate spodumene rich ore from other lithium minerals and gangue material before milling and floatation to produce a spodumene concentrate”.
- Confirming that assay testing is continuing on 18,000m of drill samples the company says that a plant based on ore sorting “could be in production in Q1 2023, funded under an interest free prepurchase payment for spodumene concentrate to be supplied”.
- The ore-sorting would allow stockpiling of “both a tantalum-rich fraction and petalite for future processing” while spodumene treatment was accelerated to help capture current appetite for concentrate.
- Premier African Minerals says, however, that “Shareholders should note that no funding has yet been arranged for this possible pilot plant and amongst many aspects of this whole concept still under scrutiny” and this, taken in conjunction with the continuing test programme which should inform the detailed flow-sheet design and cost estimates suggests that the Q1 2023 production goal may be more of an aspiration than a deliverable target at this stage.
- The company’s comment that “There are identified risks and abatements inherent in this … [accelerated programme] … to a greater extent than may be the case following a fully developed DFS. However, the potential immediate availability of prepurchase payment and existing Spodumene price and demand are important and strong motivators in potentially pursuing this option” appears to acknowledge this.
Conclusion: Premier African Minerals is examining the possibility of using ore-sorting to accelerate production of spodumene concentrate from the Zulu lithium project however with finance still to be sourced and metallurgical testing continuing the company acknowledges the inherent risk of this approach compared to the preparation of a full definitive feasibility study to quantify and address the uncertainties of project development..
Serabi Gold (AIM:SRB, TSX:SBI)* 46p, Mkt Cap £34m – Palito delivers 2022’s highest gold production in May
- Serabi Gold (AIM:SRB, TSX:SBI) reports that the Palito mine produced 2,949oz of gold during May. The total is described as the highest monthly production so far this year and follows output of 2,919oz in April which was also, at the time the highest monthly production of the year.
- Production for the three months to 31st March 2022 was 7,062oz as a result of treating 40,606t of ore at an average grade of 5.95g/t gold.
- May’s production comes from treating 15,458t of ore at an average grade of 6.42g/t gold, implying a recovery rate of approximately 92%.
- CEO, Mike Hodgson, explained that “Production at the Palito Complex continues to improve with an impressive 2,949 ounces of gold produced during May, our best month so far in 2022. It is very pleasing that the measures we put in place earlier this year are continuing to deliver consistent production ounces. We are focussed on maintaining and improving these levels over the coming months”.
*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil
Shanta Gold Limited (AIM:SHG, OTC:SAAGF) 9.8p, Mkt Cap £102m – Production picks up in May and a new $20m secured loan facility for Singida signed
- Production is picking up on better grades with the first full month of mining the Bauhinia Creek Crown Pillar in May delivering 6.4koz.
- May demonstrated the highest monthly production level in over 12 months.
- Q2/22 is on track to deliver a 45%qoq increase (Q1/22: 11.4koz).
- 2022 production guidance reiterated at 68-76koz.
- Separately, the Company announced it agreed a US$20m secured loan facility with Stanbic Bank Tanzania.
- The facility is a four year loan with an estimated interest of ~6.8% (3m SOFR+Credit spread+5.5%) repayable in 12 equal quarterly instalments following a one year grace period.
- The Company will hedge 16koz over the next 12 months representing ~20% of guided production.
- The facility will be used to support ongoing construction of the Singida Gold Project that is expected to pour first gold in Q1/23.
Conclusion: Positive operational update reported this morning with feed grades picking up at the NPGM plant after mining operations accessed high grade Crown Pillar one month ahead of schedule in April. Q2/22 production is guided to at +45%qoq on 11.4koz reported in the previous quarter.
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Analysts
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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Gold, Platinum, Palladium, Silver - BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel - Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt - LME
Oil Brent - ICE
Natural Gas, Uranium, Iron Ore - NYMEX
Thermal Coal - Bloomberg OTC Composite
Coking Coal - SSY
RRE - Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite - Asian Metal
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